Item1A. Risk Factors
Not applicable.
Item1B. Unresolved Staff Comments
Not applicable.
Item2. Properties
We currently conduct business from six full-service banking offices located in Shreveport, Louisiana, two full-service banking offices located in Bossier City, Louisiana, one full-service banking office located in
Minden, Louisiana and one full-service banking office located in Benton, Louisiana. The following table sets forth certain information, as of June 30, 2023, relating to Home Federal Bank’s offices, one property acquired for a future branch office
and one property acquired for potential future administrative offices which is presently vacant.
Description/Address Leased/Owned Net Book Value of Property Amount of Deposits
(Dollars in thousands)
Building (Home Office) 222 Florida Street, Shreveport, LA Owned $ 1,713 $ --
Building (2) 614 Market Street, Shreveport, LA Owned (2) 333 --
Building/ATM (Minden Branch) 306 Homer Road, Minden, LA Leased (3) 386 20,926
Building/ATM (Benton Branch) 104 Sibley Street, Benton, LA Owned $ 704 $ 70,232
Item3. Legal Proceedings
Home Federal Bancorp and Home Federal Bank are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business.
Item4. Mine Safety Disclosures
Not applicable.
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PART II
Item5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
(b) Not applicable.
(c) Purchases of Equity Securities.
The Company did not repurchase any of its common stock during the quarter ended June 30, 2023 including stock -for-stock option exercises:
Total -- $ -- -- --
Item6. [Reserved]
Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Our profitability depends primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets, principally loans, investment securities, and interest-earning
deposits in other institutions, and interest expense on interest-bearing deposits and borrowings from the Federal Home Loan Bank of Dallas. Net interest income is dependent upon the level of interest rates and the extent to which such rates are
changing. Our profitability also depends, to a lesser extent, on non-interest income, provision for loan losses, non-interest expenses, and federal income taxes. Home Federal Bancorp, Inc. of Louisiana had net income of $5.7 million in fiscal
2023 compared to net income of $4.9 million in fiscal 2022.
Our business consists primarily of originating single-family real estate loans secured by property in our market area and to a lesser extent, commercial real estate loans, commercial business loans, and real estate
secured lines of credit which typically have higher rates and shorter terms than single-family loans. Although our loans are primarily funded by the acquisition of deposits and it is our policy to require commercial customers to have a deposit
relationship with us, which primarily consists of NOW accounts or non-interest checking accounts. Due to the continued low interest rate environment, we have sold a substantial amount of our fixed rate single-family residential loan originations
in recent periods. Because of an increase in our average rate on our interest-bearing assets, partially offset by an increase in our rate on total interest bearing liabilities, our net interest margin increased from 3.27% to 3.73% during fiscal
2023 compared to 2022, and our net interest income increased $4.2 million to $21.6 million for fiscal 2023 as compared to $17.4 million for fiscal 2022. We expect to continue to emphasize commercial lending in the future in order to improve the
yield on our portfolio.
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Home Federal Bancorp’s operations and profitability are subject to changes in interest rates, applicable statutes and regulations, and general economic conditions, as well as other factors beyond our control.
Business Strategy
Our business strategy is focused on operating a growing and profitable community-oriented financial institution. Our current business strategy includes:
Critical Accounting Policies
In reviewing and understanding financial information for Home Federal Bancorp, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements.
These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United
States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information
available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting
policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may
be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
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Allowance for Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy and a critical accounting estimate where amounts
are sensitive to material variation. The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our consolidated balance sheet.
It is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to
the allowance. The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in
the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically
identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans,
value of collateral, estimated losses on our commercial and residential loan portfolios, and general amounts for historical loss experience. All of these estimates may be susceptible to significant changes as more information becomes available.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting
guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the Office of the Comptroller of the Currency as an integral part of their
examination processes periodically reviews our allowance for loan losses. The Office of the Comptroller of the Currency may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available
to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.
The allowance for loan losses is comprised of (i) specific reserves determined in accordance with current authoritative accounting guidance based on probable specific losses (ii) general reserve determined in
accordance with current authoritative accounting guidance that consider historical loss experience, and (iii) qualitative reserves determined in accordance with current authoritative accounting guidance based upon qualitive factors, which
include: 1) changes in lending policies, procedures, and practices; 2) changes in national and local economic trends and conditions; 3) changes in the nature and volume of the portfolio; 4) changes in the experience, ability, and depth of lending
management and staff; 5) changes in the volume and loss severity of past due loans, the volume of non-accrual loans, and the volume and loss severity of adversely classified or graded loans; 6) changes in the quality of the Company’s loan review
system; 7) changes in the value of underlying collateral for collateral-dependent loans; 8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations.
Business Combinations
Acquisition Accounting. Acquisitions are accounted for under the acquisition method of accounting. The acquisition method of accounting requires the Company as the acquirer to
recognize the fair value of assets acquired and liabilities assumed at the acquisition date, as well as recognize goodwill. If the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets
acquired less the estimated fair value of the liabilities assumed in an acquisition, goodwill is recognized. The Company records provisional amounts of fair value at the time of acquisition. The provisional fair values are subject to modification
for up to one year after the acquisition.
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Acquired Loans. Purchased loans acquired are recorded at their fair value. Discounts are included in the determination of the fair value. As such, an allowance for loan loss
is not recorded at the acquisition date. Acquired loans are evaluated at acquisition and classified as either purchased credit impaired or purchased performing loans. Purchased credit impaired loans reflect credit deterioration since origination
and as such at the date of acquisition the Company will not be able to collect all contractually required payments.The Company accounts for acquired impaired loans in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Purchased credit impaired loans are accounted for individually. The Company estimates the amount and timing of undiscounted
expected cash flows for each loan. The excess of the cash flows expected to be collected over a loan’s carrying value is considered to be the accretable yield, which is recognized as interest income over the estimated life of the loan. The excess
of the undiscounted contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference. Over the life of the loan, expected cash flows continue to be estimated. If the expected cash flows
decrease, a provision for loan loss is recorded.
If the expected cash flows increase, it is recognized as part of future income. Purchased performing loans are accounted for under ASC 310-20, Nonrefundable Fees and Other Costs (“ASC 310-20”), with the related discount or premium being recognized as an adjustment to yield over the life of the loan.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. Goodwill has an indefinite useful life and is
evaluated for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired.
Core Deposit Intangible. Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in business
combinations. The Company’s policy is to amortize these intangibles on a straight-line basis over their estimated useful life, which the estimated useful lives are periodically reviewed for reasonableness. Core deposit intangibles are tested for
impairment if events and circumstances indicate the carrying amount of the asset may not be recoverable from future cash flows.
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Selected Financial and Other Data
Set forth below is selected consolidated financial and other data of Home Federal Bancorp. The information at or for the years ended June 30, 2023 and 2022 is derived in part from the audited financial statements
that appear in this Form 10-K.
At June 30,
(In thousands)
Selected Financial and Other Data:
Loans held-for-sale 4 3,978
Federal Home Loan Bank advances -- 832
As of or for the Year Ended June 30,
(Dollars in thousands, except per share amounts)
Selected Operating Data:
Provision for loan losses 868 336
Net interest income after provision for loan losses 20,684 17,021
Income before income tax expense 6,770 6,000
Earnings per share of common stock:
As of or for the Year Ended June 30,
Selected Operating Ratios(1):
Average yield on interest-earning assets 4.61 % 3.62 %
Average rate on interest-bearing liabilities 1.24 0.51
Average interest rate spread(2) 3.37 3.11
Total non-interest expense to average assets 2.59 2.54
Return on average assets 0.92 0.85
Average equity to average assets 7.98 9.22
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Selected Financial and Other Data (Continued)
Selected Quality Ratios(4):
Non-performing loans as a percent of loans receivable, net 0.25 % 0.56 %
Non-performing assets as a percent of total assets 0.24 0.37
Allowance for loan losses as a percent of total loans receivable 1.05 1.13
Net charge-offs to average loans receivable 0.03 0.00
Allowance for loan losses as a percent of non-performing loans 417.85 174.96
Bank Capital Ratios(4):
Tangible capital ratio 8.69 % 9.65 %
Other Data:
Offices (branch and home) 10 10
Employees (full-time) 74 70
Changes in Financial Condition
At June 30, 2023, the Company reported total assets of $660.9 million, an increase of $70.4 million, or 11.9%, compared to total assets of $590.5 million at June 30, 2022. The increase in assets was comprised
primarily of increases in loans receivable, net of $101.6 million, or 26.2%, from $387.9 million at June 30, 2022 to $489.5 million at June 30, 2023, investment securities of $5.9 million, or 5.5%, from $108.0 million at June 30, 2022 to $114.0
million at June 30, 2023, goodwill of $3.0 million from none at June 30, 2022 to $3.0 million at June 30, 2023, core deposit intangible of $1.5 million from none at June 30, 2022 to $1.5 million at June 30, 2023, accrued interest receivable of
$665,000, or 59.2%, from $1.1 million at June 30, 2022 to $1.8 million at June 30, 2023, real estate owned of $368,000 from none at June 30, 2022 to $368,000 at June 30, 2023, premises and equipment of $313,000, or 1.9%, from $16.2 million at
June 30, 2022 to $16.6 million at June 30, 2023, deferred tax assets of $170,000, or 14.9%, from $1.1 million at June 30, 2022 to $1.3 million at June 30, 2023, bank owned life insurance Of $103,000, or 1.6%, from $6.6 million at June 30,2022 to
$6.7 million at June 30,2023, and other assets of $34,000, or 2.5%, from $1.3 million at June 30,2022 to $1.4 million at June 30,2023.. These increases were partially offset by decreases in cash and cash equivalents of $39.3 million, or 61.4%,
from $64.1 million at June 30, 2022 to $24.8 million at June 30, 2023, loans held-for-sale of $4.0 million, or 99.7%, from $4.0 million at June 30, 2022 to $4,000 at June 30, 2023.
Loans receivable, net increased $101.6 million, or 26.2%, from $387.9 million at June 30, 2022 to $489.5 million at June 30, 2023. The increase in loans receivable, net was attributable primarily to increases related
to the acquisition of $54.9 million in loans from First National Bank of Benton. With rising interest rates, management is reluctant to invest in long-term, fixed rate mortgage loans for the portfolio and instead sells the majority of the
long-term, fixed rate mortgage loan production.
In recent periods we diversified the loan products we offer and increased our efforts to originate higher yielding commercial real estate loans and lines of credit and commercial business loans which were deemed
attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. As of June 30, 2023, Home Federal Bank had $148.4 million of commercial real estate loans, 30.0% of the total loan
portfolio, and $55.4 million of commercial business loans, 11.2% of the total loan portfolio. Although commercial loans are generally considered to have greater credit risk than other certain types of loans, we attempt to mitigate such risk by
originating such loans in our market area to known borrowers.
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Securities available-for-sale increased $11.5 million, or 40.8%, from $28.1 million at June 30, 2022 to $39.6 million at June
30, 2023. This increase resulted primarily from the acquisition of FNBB securities with balances of $10.0 million at June 30, 2023, purchases of $7.4 million in securities, partially offset by principal repayments of $4.7 million and a decrease
in market values of securities of $1.3 million.
Securities held-to-maturity decreased $5.5 million, from $79.9 million at June 30, 2022 to $74.4 million at June 30, 2023.
This decrease was primarily due to principal repayments of $6.5 million offset by purchases of $1.0 million in FHLB stock.
Cash and cash equivalents decreased $39.3 million, or 61.4%, from $64.1 million at June 30, 2022 to $24.8 million at June 30, 2023. The decrease in cash and cash equivalents was primarily due to the funding of
additional loan growth and purchases of securities with excess liquidity.
Total liabilities increased $72.2 million, or 13.4%, from $538.1 million at June 30, 2022 to $610.4 million at June 30, 2023 primarily due to increases in total deposits of $65.4 million (deposits acquired in the
acquisition of First National Bank of Benton totaled $77.4 million), or 12.3%, to $597.4 million at June 30, 2023 compared to $532.0 million at June 30, 2022, other borrowings of $6.2 million, or 263.8%, to $8.6 million at June 30, 2023 compared
to $2.4 million at June 30, 2022, other accrued expenses and liabilities of $1.3 million, or 49.9%, to $3.9 million at June 30, 2023 compared to $2.6 million at June 30, 2022, and an increase in advances from borrowers for taxes and insurance of
$200,000, or 56.5%, to $554,000 at June 30,2023 compared to $354,000 at June 30, 2022 partially offset by a decrease in advances from FHLB of $832,000, or 100.0%, to none at June 30,2023 compared to $832,000 at June 30, 2022. The increase in
deposits was primarily due to a $110.1 million, or 137.1%, increase in certificates of deposit from $80.3 million at June 30, 2022 to $190.4 million at June 30, 2023, a $15.6 million, or 15.8%, increase in money market deposits from $98.6 million
at June 30, 2022 to $114.2 million at June 30, 2023,and a $6.4 million, or 10.8%, increase in NOW accounts from $59.0 million at June 30, 2022 to $65.3 million at June 30, 2023, partially offset by a decrease of $51.1 million, or 38.4%, in
savings deposits from $133.0 million at June 30, 2022 to $81.9 million at June 30, 2023, and a decrease of $15.6 million, or 9.7%, in non-interest deposits from $161.4 million at June 30, 2022 to $145.6 million at June 30, 2023. The Company had
$3.0 million in brokered deposits at June 30, 2023 compared to $6.0 million at June 30, 2022. The decrease in advances from the Federal Home Loan Bank was primarily due to principal paydowns on amortizing advances.
Stockholders’ equity decreased $1.8 million, or 3.4%, to $50.5 million at June 30, 2023 from $52.3 million at June 30, 2022. The primary reasons for the changes in stockholders’ equity from June 30, 2022 were the
repurchase of Company stock of $6.0 million, dividends paid totaling $1.5 million, and a decrease in the Company’s accumulated other comprehensive income of $1.0 million, partially offset by net income of $5.7 million, the vesting of restricted
stock awards, stock options, and the release of employee stock ownership plan shares totaling $620,000, and the proceeds from the issuance of common stock from the exercise of stock options of $328,000.
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Average Balances, Net Interest Income Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average
interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a
tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Interest-earning assets:
Interest-bearing liabilities:
Non-interest-bearing liabilities:
Net interest margin(4) 3.73 % 3.27 %
(1) Includes loans held for sale.
(2) Includes retained earnings and accumulated other comprehensive loss.
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Rate/Volume Analysis. The following table describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have
affected Home Federal Bancorp’s interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by current year volume), and (iii) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
Rate Volume (Decrease) Rate Volume (Decrease)
(In thousands)
Interest income:
Interest expense:
Comparison of Operating Results for the Years Ended June 30, 2023 and 2022
General.The increase in net income for the year ended June 30, 2023 resulted primarily from a $4.2 million, or 24.2%, increase in net interest income, and a decrease of $61,000, or 5.4%, in provision for
income taxes, partially offset by an increase of $1.5 million, or 10.5%, in non-interest expense, a decrease of $1.4 million, or 39.6%, in non-interest income, and an increase of $532,000, or 158.3% in provision for loan losses. The increase in
the provision for loan losses is mainly due to growth in the overall loan portfolio. The increase in net interest income was primarily due to a $7.4 million, or 38.5%, increase in total interest income, partially offset by a $3.2 million, or
170.6%, increase in total interest expense. The Company’s average interest rate spread was 3.37% for the year ended June 30, 2023 compared to 3.11% for the year ended June 30, 2022. The Company’s net interest margin was 3.73% for the year ended
June 30, 2023 compared to 3.27% for the year ended June 30, 2022.
Net Interest Income. Net interest income amounted to $21.6 million for fiscal year 2023, an increase of $4.2 million, or 24.2%, compared to $17.4 million for fiscal year 2022.
The increase was due primarily to an increase of $7.4 million in total interest income, partially offset by a $3.2 million increase in total interest expense.
The average interest rate spread increased from 3.11% for fiscal 2022 to 3.37% for fiscal 2023, while the average balance of interest-earning assets increased from $531.2 million to $577.8 million during the same
periods. The percentage of average interest-earning assets to average interest-bearing liabilities decreased to 141.05% for fiscal 2023 compared to 143.32% for fiscal 2022. The average rate paid on certificates of deposit increased from 1.37% for
fiscal 2022 to 2.34% for fiscal 2023. Net interest margin increased to 3.73% for fiscal 2023 compared to 3.27% for fiscal 2022.
Interest income increased $7.4 million, or 38.5%, to $26.6 million for fiscal 2023 compared to $19.2 million for fiscal 2022, primarily due to an increase in interest income from loans of $6.0 million, an increase in
interest income on other earning assets of $750,000 and an increase of$696,000 in interest income from investment and mortgage-backed securities. The increase in the average balance of loans receivable was primarily due to new loans originated by
our commercial lending division and loans acquired in the acquisition of First National Bank of Benton. The average yield of the loan portfolio increased by 57 basis points during fiscal 2023 mainly due to a higher interest rate environment.
Interest expense increased $3.2 million, or 170.6%, to $5.1 million for fiscal 2023 compared to $1.9 million for fiscal 2022, primarily as a result of decreases in the average rate paid on interest-bearing deposits.
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Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our
loan portfolio. Loan losses are charged against the allowance when management believes the collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume
of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information or events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual
terms of the loan agreement. When a loan is impaired, the measurement of such impairment is based upon the fair value of the collateral of the loan. If the fair value of the collateral is less than the recorded investment in the loan, we will
recognize the impairment by creating a valuation allowance with a corresponding charge against earnings.
An allowance is also established for uncollectible interest on loans classified as substandard. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received. When, in management’s judgment, the borrower’s ability to make interest and principal payments is back to normal, the loan is returned to accrual status.
A provision of $868,000 was made to the allowance during fiscal 2023, compared to a provision of
$336,000 in fiscal 2022. At June 30, 2023, the Company had $1.6 million
of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due, and other real estate owned) compared to $2.2 million of non-performing assets at June 30, 2022, consisting of seven single family residential
loans two non-real estate commercial loans, one consumer loan, and two single-family residences at June 30, 2023, compared to seven single-family residential loans at June
30, 2022. The decrease in non-performing assets from $2.2 million at June 30, 2022 to $1.7 million at June 30, 2023 was primarily due to improved loan credit quality. At June 30, 2023, the Company had ten single family residential loans,
three commercial non-real-estate loans, two commercial real estate loans, and three home equity line-of-credit loans classified as substandard compared to five single family residential loans and two commercial real estate loans classified
as substandard at June 30, 2022. There were no loans classified as doubtful at June 30, 2023 or 2022.
Non-Interest Income. Non-interest income amounted to $2.1 million for the year ended June 30, 2023, a decrease of $1.4 million, or 39.6%, compared to non-interest income of
$3.5 million for the year ended June 30, 2022. The $1.4 million decrease in non-interest income for the year ended June 30, 2023 compared to the prior year period was primarily due to a decrease of $1.5 million in gain on sale of loans, a
$232,000 decrease in other non-interest income, and a $10,000 decrease in income from bank owned life insurance, partially offset by an increase of $329,000 in service charges on deposit accounts, and a $52,000 decrease in loss on sale of fixed
assets and real estate owned . The decrease in gain on sale of loans for the year ended June 30, 2023 was primarily due to a decrease in refinance activity causing a decrease in mortgage loan originations. The Company sells most of its long-term
fixed rate residential mortgage loan originations primarily in order to manage interest rate risk.
Non-Interest Expense. Non-interest expense increased $1.5 million, or 10.5%, in fiscal 2023 compared to the prior year period. The $1.5 million increase in non-interest
expense for the year ended June 30, 2023, compared to the prior year period, is primarily attributable to increases of $875,000 in professional fees which were primarily due to FNBB acquisition costs, $267,000 in occupancy and equipment expense,
$174,000 in amortization of core deposit intangible expense, $143,000 in deposit insurance premium expense, $69,000 in compensation and benefits expense, $22,000 in data processing expense, and $11,000 in advertising expense, partially offset by
decreases of $22,000 in loan and collection expense, $14,000 in audit and examination fees, $5,000 in other non-interest income, and $4,000 in franchise and bank shares tax expense.
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Provision for Income Tax Expense. The provision for
income taxes amounted to $1.1 million for both the fiscal years ended June 30, 2023 and 2022. Our effective tax rate was 15.7% for fiscal 2023 and 18.8% for fiscal 2022.
Exposure to Changes in Interest Rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Our interest-earning assets consist primarily
of securities available-for-sale and long-term residential and commercial mortgage loans, which have fixed rates of interest. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on
deposits and borrowings can be adversely affected when market rates of interest rise.
Although long-term, fixed-rate mortgage loans made up a significant portion of our interest-earning assets at June 30, 2023, we sold a substantial amount of our one-to-four family residential loans we originated and
maintained a significant portfolio of available-for-sale securities during the past few years in order to better position the Company for a rising interest rate environment in the long term. At June 30, 2023 and 2022, securities
available-for-sale amounted to $39.6 million and $28.1 million, respectively, or 6.04% and 4.8%, respectively, of total assets at such dates.
Quantitative Analysis. The Office of the Comptroller of the Currency provides a quarterly report on the potential impact of interest rate changes upon the market value of
portfolio equity. Management reviews the quarterly reports from the Office of the Comptroller of the Currency, which show the impact of changing interest rates on net portfolio value. Net portfolio value is the difference between incoming and
outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts.
Net Portfolio Value. Our interest rate sensitivity is monitored by management through the use of a model which internally generates estimates of the change in our net
portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in
that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of June 30, 2023:
Basis Points (Rate Shock) Amount $ Change % Change NPV Ratio Change
(Dollars in thousands)
Qualitative Analysis. Our ability to maintain a positive “spread” between the interest earned on assets and the interest paid on deposits and borrowings is affected by changes
in interest rates. Our fixed-rate loans generally are profitable, if interest rates are stable or declining since these loans have yields that exceed our cost of funds. If interest rates increase, however, we would have to pay more on our
deposits and new borrowings, which would adversely affect our interest rate spread. In order to counter the potential effects of dramatic increases in market rates of interest, we have underwritten our mortgage loans to allow for their sale in
the secondary market. Total loan originations amounted to $244.0 million for fiscal 2023 and $339.6 million for fiscal 2022, while loans sold amounted to $24.9 million and $87.2 million during the same respective periods. We have invested excess
funds from loan payments and prepayments and loan sales in investment securities classified as available-for-sale. As a result, Home Federal Bancorp is not as susceptible to rising interest rates as it would be if its interest-earning assets were
primarily comprised of long-term fixed rate mortgage loans. With respect to its floating or adjustable rate loans, Home Federal Bancorp writes interest rate floors and caps into such loan documents. Interest rate floors limit our interest rate
risk by limiting potential decreases in the interest yield on an adjustable rate loan to a certain level. As a result, we receive a minimum yield even if rates decline farther, and the interest rate on the particular loan would otherwise adjust
to a lower amount. Conversely, interest rate ceilings limit the amount by which the yield on an adjustable rate loan may increase to no more than six percentage points over the rate at the time of origination. Finally, we intend to place a
greater emphasis on shorter-term consumer loans and commercial business loans in the future.
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Liquidity and Capital Resources
Home Federal Bancorp maintains levels of liquid assets deemed adequate by management. Our liquidity ratio averaged 21.42% for the quarter ended June 30, 2023. We adjust our liquidity levels to fund deposit outflows,
repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Our primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, loan sales and earnings, and funds
provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic
conditions, and competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet
lending requirements. Our deposit accounts with the Federal Home Loan Bank of Dallas amounted to $5.0 million and $11.9 million at June 30, 2023 and 2022, respectively.
A significant portion of our liquidity consists of securities classified as
available-for-sale and cash and cash equivalents. Our primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, and increases in deposit accounts. If we require funds beyond our ability to
generate them internally, we have borrowing agreements with the Federal Home Loan Bank of Dallas, which provide an additional source of funds. At June 30, 2023, we had no advances from the Federal Home Loan Bank of Dallas and had $212.2
million in additional borrowing capacity. Additionally, at June 30, 2023, Home Federal Bank was a party to a Master Purchase Agreement with First National Bankers Bank, whereby Home Federal Bank may purchase Federal Funds from
First National Bankers Bank in an amount not to exceed $20.4 million. There were no amounts purchased under this agreement as of June 30, 2023. In addition, Home Federal Bancorp had available an $10.0million line of credit agreement at June 30, 2023 with First National Bankers Bank. At June 30, 2023 there was an $8.6 million balance in the credit line.
At June 30, 2023, the Company had outstanding loan commitments of $53.4 million to originate loans and commitments under unused lines of credit of $15.0 million. At June 30, 2023, certificates of deposit scheduled to
mature in one year or less totaled $168.2 million, or 88.3% of total certificates of deposit. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that
this will be the case. In addition, the cost of such deposits could be significantly higher upon renewal in a rising interest rate environment. We intend to utilize our high levels of liquidity to fund our lending activities. If additional funds
are required to fund lending activities, we intend to sell our securities classified as available-for-sale, as needed.
At June 30, 2023, Home Federal Bank exceeded each of its capital requirements with tangible equity, common equity Tier 1, core, and total risk-based capital ratios of 8.69%, 12.79%, 8.69%, and 13.95%, respectively.
In the first quarter of 2023, the Company will transition to CECL from the current incurred loss method and recognized a one-time, after-tax cumulative effect adjustment. The Company has been evaluating the impact.
At this time, the Company estimates the allowance for credit losses will increase between 4% to 9%. The amount determined from adoption will be recognized as a cumulative effective to the July 1, 2023 retained earnings. Regulations of the
federal banking agencies provide an optional CECL transition provision that allows a banking organization that experiences a reduction in retained earnings as of its CECL adoption date to elect to phase in the regulatory capital impact of that
reduction over a three-year period. Under the regulations, the Company is required to begin the three-year transition in the first fiscal year it has adopted CECL, which for The Company is fiscal year 2024. As a result, the regulatory capital
impact of The Company’ adoption of CECL is being phased in from July 1, 2023 through June 30, 2026.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission rules, and have not had any such arrangements during the two years ended June 30, 2023. See Notes 9 and 14 to the
Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.
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Impact of Inflation and Changing Prices
The consolidated financial statements and related financial data presented herein regarding Home Federal Bancorp have been prepared in accordance with accounting principles generally accepted in the United States of
America, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies,
virtually all of our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on Home Federal Bancorp’s performance than does the effect of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward-looking statements are not historical facts but
instead represent only the beliefs, expectations or opinions of Home Federal Bancorp and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of
such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward-looking
statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements
regarding future performance. Such statements are subject to certain risks, uncertainties and assumption, many of which are difficult to predict and generally are beyond the control of Home Federal Bancorp and its management, that could cause
actual results to differ materially from those expressed in, or implied or projected by, forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the
amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in the interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the
markets in which Home Federal Bancorp is or will be doing business, being less favorable than expected (6) political and social unrest including acts of war or terrorism; or (7) legislation or changes in regulatory requirements adversely
affecting the business in which Home Federal Bancorp will be engaged. Home Federal Bancorp undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements
were made.
Item7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors
Home Federal Bancorp, Inc. of Louisiana
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Home Federal Bancorp, Inc. of Louisiana (the “Company”) as of June 30, 2023 and 2022 and the
related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2023 and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022 and the results of its operations and its cash flows for each of
the years in the two-year period ended June 30, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required
to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Allowance for Loan Losses – Qualitative Factors
As described in Note 1 and Note 3 to the financial statements, the Company’s allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. The allowance for loan losses was $5.173 million at June 30, 2023, which is comprised of (i) specific reserves determined in accordance with current authoritative accounting guidance based on
probable losses on specific loans (ii) general reserves determined in accordance with current authoritative accounting guidance that consider historical loss experience, and (iii) qualitative reserves. The qualitative reserve is based upon general
economic conditions as well as other qualitative risk factors both internal and external to the Company and requires management to make judgments regarding the impact of qualitative factors on probable inherent losses.
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We identified the allowance for loan losses as a critical audit matter. The principal considerations for that determination included the high degree of
judgment and subjectivity relating to management’s identification and measurement of the qualitative factors. This required a high degree of auditor effort and significant auditor judgment in evaluating the estimated allowance for loan losses.
The primary procedures we performed to address this critical audit matter included:
Acquisition of Northwest Bancshares Corporation. - Fair Value of Acquired Loans and CDI
As described further in Note 1 and Note 22 to the financial statements, the Company completed the acquisition of Northwest Bancshares Corporation (“NWB”) on
February 1, 2023. The Company accounted for this acquisition under the purchase method of accounting. Purchased assets and assumed liabilities are recorded at their respective acquisition date fair values, and identifiable intangible assets are
recorded at fair value. Determination of the acquisition date fair value required management to make significant estimates and assumptions. The fair value of the acquired loans and CDI was $54.12 million and $1.41 million, respectively, as of
February 1, 2023.
We identified the determination of the acquisition date fair value of acquired loans and the core deposit intangible (“CDI”) as a critical audit matter. The
principal considerations for our determination included the high degree of judgment and subjectivity involved in auditing management’s selection of assumptions used to determine fair value. This required a high degree of auditor effort, specialized
skills and knowledge, and significant auditor judgment.
Our primary audit procedures performed to address
this critical audit matter included:
o The estimate of the fair value of the CDI, including, reperformance.
/s/ FORVIS, LLP
We have served as the Company’s auditor since 2021.
Fort Worth, Texas
October 2, 2023
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2023 and 2022
(In Thousands)
ASSETS
Loans Held-for-Sale 4 3,978
Core Deposit Intangible 1,533 -
Real Estate Owned 368 -
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Advances from Borrowers for Taxes and Insurance 554 354
Short-term Federal Home Loan Bank Advances - 832
Other Accrued Expenses and Liabilities 3,908 2,606
STOCKHOLDERS’ EQUITY
Unearned ESOP Stock (523 ) (639 )
Accumulated Other Comprehensive Loss (2,654 ) (1,699 )
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 660,915 $ 590,480
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended June 30, 2023 and 2022
For the Years Ended June 30,
(In Thousands, Except Per Share Data)
INTEREST INCOME
Investment securities 251 4
Other interest-earning assets 974 224
INTEREST EXPENSE
Federal Home Loan Bank borrowings 79 41
Other bank borrowings 494 66
PROVISION FOR LOAN LOSSES 868 336
Net Interest Income After Provision For Loan Losses 20,684 17,021
NON-INTEREST INCOME
Service charges on deposit accounts 1,476 1,147
Gain (loss) on sale of real estate and fixed assets 4 (48 )
Income on Bank-Owned Life Insurance 103 113
NON-INTEREST EXPENSE
Audit and examination fees 314 328
Franchise and bank shares tax 531 535
Amortization Core Deposit Intangible 174 -
Deposit insurance premium 297 154
PROVISION FOR INCOME TAX EXPENSE 1,066 1,127
EARNINGS PER SHARE
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended June 30, 2023 and 2022
For the Years Ended June 30,
(In Thousands)
Other Comprehensive (Loss) Income, Net of Tax
Investment securities available-for-sale:
Net unrealized (losses) gains (1,208 ) (2,500 )
Other Comprehensive (Loss) Income (955 ) (1,974 )
Total Comprehensive Income $ 4,749 $ 2,899
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended June 30, 2023 and 2022
(In Thousands)
Share Awards Earned - 117 - - - 117
Stock Options Exercised - 1,889 - - - 1,889
Stock Options Vested - 95 - - - 95
Company Stock Purchased - - - (4,484 ) - (4,484 )
Share Awards Earned - 123 - - - 123
Stock Options Exercised (3 ) 331 - - - 328
Stock Options Vested - 95 - - - 95
Company Stock Purchased - - - (5,963 ) - (5,963 )
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2023 and 2022
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities
Gain on Sale of Loans (466 ) (1,982 )
Net Amortization and Accretion on Securities (27 ) 109
Amortization of Deferred Loan Fees (300 ) (805 )
Provision for Loan Losses 868 336
Depreciation of Premises and Equipment 869 763
(Gain) Loss on Sale of Real Estate and Fixed Assets (4 ) 48
ESOP Compensation Expense 403 459
Stock Option Expense 95 95
Deferred Income Tax (Benefit) Expense (174 ) (324 )
Federal Home Loan Bank Stock Dividend (13 ) -
Bad Debt Recovery 91 24
Changes in Assets and Liabilities:
Origination and Purchase of Loans Held-for-Sale (24,865 ) (87,238 )
Sale and Principal Repayments on Loans Held-for-Sale 29,305 99,669
Accrued Interest Receivable (666 ) 39
Other Operating Assets (35 ) 366
Other Operating Liabilities 1,302 (111 )
Net Cash Provided By Operating Activities 12,105 17,059
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations and Principal Collections, Net (97,033 ) (51,004 )
Deferred Loan Fees Collected 151 372
Acquisition of Premises and Equipment (1,181 ) (2,574 )
Net Cash Paid in Acquisition (10,244 ) -
Proceeds from Sale of Real Estate and Fixed Assets 4 814
Improvements to Real Estate Owned Prior to Disposition (90 ) -
Activity in Available-for-Sale Securities:
Purchase of Municipals (1,075 ) -
Purchase of Mortgage-Backed Securities (6,493 ) (9,484 )
Purchase of US Treasury Notes (14,611 ) -
Activity in Held-to-Maturity Securities:
Purchase of Securities - (34,619 )
Purchases of FHLB Stock (989 ) (15 )
Principal Payments on Mortgage-Backed Securities 6,510 9,317
Sale/Redemptions of Securities - -
Net Cash Used in Investing Activities (115,314 ) (78,793 )
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended June 30, 2023 and 2022
For the Years Ended June 30,
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Advances from Federal Home Loan Bank 184,001 -
Repayments of Advances from Federal Home Loan Bank (184,833 ) (35 )
Company Stock Purchased (5,963 ) (4,484 )
Proceeds from Other Bank Borrowings 6,200 3,150
Repayment of Other Bank Borrowings - (3,200 )
Proceeds from Stock Options Exercised 328 1,889
Recognition and Retention Plan Share Distributions 123 117
Net Cash Provided by Financing Activities 63,896 21,407
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (39,313 ) (40,327 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 64,078 104,405
CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,765 $ 64,078
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid on Deposits and Borrowed Funds 5,079 1,892
Transfer from Loans to Other Real Estate 172 -
Acquisitions:
Fair Value of Tangible Assets Acquired 82,889 -
Other Intangible Assets Acquired 1,510 -
Liabilities Assumed (77,145 ) -
Net Identifiable Assets Acquired Over Liabilities Assumed 7,254 -
The accompanying notes are an integral part of these consolidated financial statements.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Nature of Operations
The consolidated financial statements include the accounts of Home Federal Bancorp, Inc. of Louisiana, a
Louisiana chartered corporation (the “Company” or “Home Federal Bancorp”) and its wholly owned subsidiary, Home Federal Bank, a federally chartered stock savings bank (the “Bank”), along with its wholly owned subsidiary, Metro Financial
Services, Inc.
The Bank is a federally chartered, stock savings and loan association and is subject to federal regulation by the Federal
Deposit Insurance Corporation and the Office of the Comptroller of the Currency (the OCC). The Bank provides financial services to individuals, corporate entities, and other organizations through the origination of loans and the acceptance
of deposits in the form of passbook savings, certificates of deposit, and demand deposit accounts. Services are provided by ten
branch offices, six of which are located in Shreveport, Louisiana, two in Bossier City, one in Minden, Louisiana and one in Benton, Louisiana. The Bank’s home office is located in Shreveport, Louisiana.
The Bank is subject to competition from other financial institutions and to the regulations of certain federal
and state agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary,
Home Federal Bank. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses, deferred taxes,
and those related to acquisition accounting.
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are provided to customers of the Bank by ten branch offices, six of which
are located in the city of Shreveport, Louisiana, two in Bossier City, Louisiana, one in Minden, Louisiana and one in Benton, Louisiana. The
area served by the Bank is primarily the Shreveport-Bossier City-Minden combined statistical area; however, loan and deposit customers are found dispersed in a wider geographical area covering much of northwest Louisiana.
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HOME FEDERAL BANCORP, INC. OF LOUISIANA AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand,
balances due from banks, and federal funds sold, all of which have an original maturity date of ninety days or less.
At June 30, 2023 and 2022, cash and cash equivalents consisted of the following:
(In Thousands)
Demand Deposits at Other Institutions 17,965 40,758
Securities
Securities are being accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 320’s, Investments whichrequires the classification of securities into one of three categories: Trading, Available-for-Sale, or
Held-to-Maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically.
Investments in non-marketable equity securities and debt securities, in which the Company has the positive intent and ability to
hold to maturity, are classified as held-to-maturity and carried at cost, adjusted for amortization of the related premiums, and accretion of discounts, using the interest method. Investments in debt securities that are not classified as
held-to-maturity and marketable equity securities that have readily determinable fair values are classified as either trading or available-for-sale securities.
Securities that are acquired and held principally for the purpose of selling in the near term are classified as trading
securities. Investments in securities not classified as trading or held-to-maturity are classified as available-for-sale. Trading account and available-for-sale securities are carried at fair value. Unrealized holding gains and losses on
trading securities are included in earnings, while net unrealized holding gains and losses on available-for-sale debt securities are excluded from earnings and reported in other comprehensive income.
The Company held no
trading securities as of June 30, 2023 and 2022.
Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities.
Securities are periodically reviewed for other-than-temporary impairment. For debt securities, management considers whether the present value of future cash flows expected to be collected are less than the security’s amortized cost basis
(the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the security or whether it is more likely than not that the Company would be required
to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. If a decline in value is determined to be other than temporary, if the Company does not intend to sell the
security, and it is more-likely-than-not that it will not be required to sell the security before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference
between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive loss, net of applicable taxes. A decline in value that is considered to be other-than-temporary is recorded as a
loss within noninterest income in the consolidated statements of income.
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Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (Continued)
The Bank has invested
in Federal Home Loan Bank (“FHLB”) stock, and other similar correspondent banks, which is reflected at cost in these consolidated financial statements. As a member of the FHLB System, the Bank is required to purchase and maintain stock in
an amount determined by the FHLB. The FHLB stock is redeemable at par value at the discretion of the FHLB.
Acquisition Accounting
Acquisitions are accounted for under the purchase method of accounting. The acquisition method of accounting requires the Company as the acquirer to recognize the fair value of assets acquired and liabilities assumed
at the acquisition date, as well as recognize goodwill. If the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed
in an acquisition, goodwill is recognized. The Company records provisional amounts of fair value at the time of acquisition. The provisional fair values are subject to modification for up to one year after the acquisition.
Loans Held-for-Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated
fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less allowances for loan losses and unamortized
deferred loan fees. Net non-refundable fees (loan origination fees, commitment fees, discount points) and costs associated with lending activities are being deferred and subsequently amortized into income as an adjustment of yield on the
related interest earning assets using the interest method. Interest income on contractual loans receivable is recognized on the accrual method. Unearned discounts are deferred and amortized on the interest method over the life of the loan.
Acquired Loans
Purchased loans acquired are recorded at their fair value. Discounts are included in the determination of
the fair value. As such, an allowance for loan loss is not recorded at the acquisition date. Acquired loans are evaluated at acquisition and classified as either purchased credit impaired or purchased performing loans. Purchased credit
impaired loans reflect credit deterioration since origination and as such at the date of acquisition the Company will not be able to collect all contractually required payments.The Company accounts for acquired impaired loans in accordance with ASC 310-30, Loans and Debt
Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Purchased credit impaired loans are accounted for individually. The Company estimates the amount and timing of undiscounted expected cash flows for each loan.
The excess of the cash flows expected to be collected over a loan’s carrying value is considered to be the accretable yield, which is recognized as interest income over the estimated life of the loan. The excess of the undiscounted
contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference. Over the life of the loan, expected cash flows continue to be estimated. If the expected cash flows decrease, a
provision for loan loss is recorded.
If the expected cash flows increase, it is recognized as part of future income. Purchased performing
loans are accounted for under ASC 310-20, Nonrefundable Fees and Other Costs (“ASC 310-20”), with the related discount or premium being recognized as an
adjustment to yield over the life of the loan.
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